Air New Zealand CEO explains why flights are so expensive and if they will get cheaper

Air New Zealand chief executive Greg Foran has said the airline is in “a challenging environment” regarding costs and did not expect airfares to drop on their own.

Speaking at the annual tourism event Trenz in Wellington last week, , Foran was asked whether airfare would drop any time soon.

He responded by explaining the increased cost of fuel, saying the cost of a barrel was about $85 last year but is now closer to $105 and had only dropped to $95 this week.

Every dollar per barrel represented $12 million in costs to the airline, Foran claimed.

“If we assume it’s going to be $80 and it’s $85, it’s $5 more, that’s basically costing us $60 million straight off the bottom line,” he said, describing the difference as “meaningful” for a business that makes between $300m and $400m annually.

“I think it’s going to be a challenge to see prices come down on a normalised basis,” he added.

Auckland Airport’s chief customer officer, Scott Tasker, said the industry was currently “intensely competitive”, and Air New Zealand wasn’t alone in facing increased costs.

“The pressures that we’re under are not any different from every other carrier when it comes to fuel, when it comes to engineering costs, when it comes to inflation,” he said, describing these factors as “universal”.

Tasker said the airport and Air New Zealand would always be focused on the value created.

“It’s not just about price for us, it’s about making sure that customers see value in our proposition,” he said.

What are international airfares like compared with 2019?

International airfares increased by 7.2 per cent in April, compared with March, according to Stats NZ. This followed a drop during summer when competing airlines returned to NZ and drove prices down.

International air transport prices have dropped 20.5 per cent in the past 12 months, while domestic prices are down 6.9 per cent.

However, these prices are still 47.7 per cent more expensive than in April 2019, a year now considered the “golden era” for cheap travel before the pandemic.

Kiwis waiting for prices to return to pre-pandemic numbers will be waiting a while, according to previous comments from Air New Zealand’s CEO.

“Our own costs continue to rise and the reality is that airfares are unlikely to return to pre-pandemic levels,” Foran said back in August 2023.

Domestic market considered the least competitive market in NZ

Air New Zealand warned travel agents long-term domestic airfares would increase from April 23 but did not disclose how much.

Domestic air transport prices fell 5.1 per cent from March to April and were 6.9 per cent less than at the same time last year, yet there is concern the domestic airfare market is not competitive enough.

A Horizon Research study found 75 per cent of Kiwi respondents considered the domestic aviation market was the least competitive in New Zealand. Air New Zealand currently operates more than 80 per cent of domestic flights.